Big smartwatch push at CES anticipates Apple's entry later in 2015

LAS VEGAS -- At International CES this week, more than 500 vendors are showing off wearable computing gear of some flavor or other.

Among the 569 companies officially listed on the CES website, some are pushing silicon chips for embedding in clothes and shoes while others are promoting wearable computing accessories. Vendors are displaying commercially available smartwatches and smart glasses. Others are showing how wearables have become smarter by coupling data about individuals with enormous data sets in the cloud.

Given the normal course of modern technology, about 90% of these companies will fade away or give up on their wearable products within three years and move on to the next big thing.

That doesn't mean wearable computing will go away. Even if just 10% of the vendors at CES stick with their creations, that will mean more than 50 companies remain active in wearable computing. In the future, others will surely enter the space.

What CES 2015 will show is that wearables -- and smartwatches in particular -- will begin to grow in popularity.

"Wearable demand is greater than you think," Forrester analyst J.P. Gownder wrote in a December note to chief marketing officers. "Setting aside wearables hype -- and anti-wearables hype -- quantitative data shows that people and businesses demonstrate strong demand for wearables."

Smartwatches alone have advanced considerably since last year's CES. Samsung has five different models, including the most recent $350 Gear S, which has a 2-in. curved display and voice calling with support from various wireless networks. Earlier, Google's Android Wear OS inspired the Moto 360 smartwatch and the LG G Watch. Microsoft has its own smart Band, a kind of fitness-focused smartwatch. And Intel recently engineered the MICA as a gemstone-embedded $495 smart bracelet that works over the 3G AT&T cellular data network without the need to connect to a smartphone.

Apple Watch: The one to track

The big elephant in the room is Apple, which has promoted the Apple Watch for release sometime in 2015, probably the second quarter. While Apple won't officially exhibit at CES, it is again expected to dominate attention. The big question being debated on investor blogs is whether Apple will sell as few as 3 million or as many as 30 million Apple Watches in the first year of sales.

Given Apple's success with the iPhone and the iPad, the Apple Watch is the tech product to keep an eye on in 2015.

If Apple sells 30 million watches in 2015, that would account for 75% of the global forecast of 40 million smartwatches overall that Gartner predicts will be sold for the year. But the forecasts for Apple Watch and other smartwatch models are all over the map: Research group FutureSource predicts 20 million smartwatches will be sold in 2015, half of Gartner's forecast. In 2014, Gartner said 10 million smartwatches were sold, and that the number will reach 60 million in 2016.

Despite all the attention, some diehard techies wonder why smartwatches and other wearables matter, some having called them a lifestyle and fashion trend that won't have staying power. They point to the wide variations in analyst forecasts as support for their point of view. A number of analysts suggest that smartwatches will matter a lot -- probably more than most people have guessed -- but not right away. In addition to having multiple consumer uses, smartwatches will matter for workers seeking greater productivity and for marketing officers in companies that want to design smartwatch apps to better engage with customers.

Last year, the smartwatch became more fashionable and less clunky, but it also became a quick way for a executives to quickly get alerts of an important email or call, without the need to dig into a pocket, purse or briefcase to find a smartphone. There's been a recognition that a smartwatch can be a smarter, more powerful and more convenient pager-like device that alerts a doctor to a patient's emergency or a stockbroker to a sudden market shift for a key stock.

In 2015 and beyond, customers are going to demand more smarts from these devices, even better looks and pricing that's well below $300. "Almost anything is on the table, and all the software and apps for the wearable hardware is what will matter most," said Ramon Llamas, an IDC analyst.

One of the biggest pushes in the past year has been on sales of dozens of different fitness wrist bands, such as those from FitBit and Jawbone. Some of these wrist bands have GPS tracking and Bluetooth connections to smartphones where more of the functions reside for monitoring workouts and the user's health, such as heart rate and sleep functions. Fitness wearables are expected to whet the appetite for more functions inside smartwatches and other smart wearables.

The 10% threshold

In a 2014 survey, Forrester found that 10% of 4,556 U.S. adults said they had used a wearable device to track daily activity. That 10% traditionally represents a key threshold for future growth in product adoption. While Google Glass might be considered experimental, "Entering 2015, wearables are poised to take off," Forrester's Gownder said. "People are intrigued by the prospect of getting a wearable device and are tired of pulling a smartphone out of a pocket to get information."

Because of Apple's reputation with its previous products, it has influence in any category it enters. "We absolutely believe the Apple Watch is legitimizing the entire wearables category," Gownder said.

"There were smartphones before the iPhone and tablets before the iPad, but what Apple does is leverage the ability to educate consumers about new categories and shows us what matters and gives a category legitimacy," Gownder said. "Apple will make a splash in 2015 and legitimize the category. When we look back years from now, it will be a watershed year for the mass market for wearables."

Gownder was more charitable than most analysts toward the many wearable products that will be shown at CES, saying just 80% will fail, not the 90% cited by many of his peers. But in the long term, the failures really won't matter. When Internet commerce started, Pets.com and other sites failed, but many others thrived. "This is a time of great creative destruction for wearables," he said.

Part of the market dynamism behind wearable products is that companies like smartwatch maker Pebble have driven early investments through Kickstarter contributions from many smaller investors, creating a new wave of financing, Gownder noted. Plus, the fundamental components of smartwatches and other wearables, including sensors, are not that expensive. The best small startups will be bought by large companies, as Intel did with its March purchase of Basis Science, which made a health-tracking wristband.

Impact on workers and marketing apps

Businesses foresee a clear return on investment in wearables, both for operational efficiency and in helping to shape the customer experience, Gownder said. He ticked off several examples already being tested or deployed, including an unusual one by mining and construction company Thiess of Australia.

Thiess is trying out wearable devices such as the Amiigo activity tracker wristband to measure the blood oxygenation, body temperature and movement of its field workers to find out if they might have been bitten by an aggressive, venomous snake called the Inland Taipan that lives in the Australian outback. (Gownder described the application and others in this presentation, starting at 5:50 on the counter.) The company can centrally monitor such worker data in real time to provide an emergency response for an injured worker.

Smartwatches could also be a good candidate for use in mobile payments, a prospect that Apple has described with its NFC-ready Apple Watch. In the U.K., Barclaycard offers customers a bPay wristband that can be used to quickly pay for small items, such as tickets for the subway or food and drinks at soccer games of the Southampton Football Club, Gownder said.

Virgin Atlantic also evaluated smartwatches alongside Google Glass with customer service agents at its upper-class lounge at Healthrow Airport, Gownder said. Glass allowed the agents to look directly at their customers, while the smartwatches required them to look at their wrists, which led customers to feel they were being ignored.

Another intriguing marketing possibility with smartwatches are the use of haptics, those vibrations emitted by smartphones and other devices, as a means of helping direct customers through a department store or mall to reach a location for a sale or special offer. One buzz could mean to turn left, two buzzes to turn right and three to stop. Haptics could be used in similar ways inside of shoes and garments.

In another marketing-focused example that Gownder described, sunscreen-maker Nivea launched a wearable tracking band in Brazil that could be torn out of a fashion magazine and placed on a child's wrist, then paired with a smartphone app to deliver the parent a notification if the child moved beyond a pre-set sun exposure range.

One of the more provocative marketing possibilities of the Apple Watch is its Digital Touch feature, which allows the wearer to share his or her heartbeat with someone else. When customers share a heartbeat, they can then get personalized messages in response that either correspond to the heartbeat or are designed to alter the mood behind the heartbeat. Whether the technology really works or proves to be a gimmick is anybody's guess.

"Creating marketable moments of this sort will require cultural engineering that only the right brands can pull off," Gownder said.

The downsides to wearables: Privacy, security

Google Glass has been criticized because of concerns that it invades people's privacy. For instance it isn't always clear when the user is taking a photo of someone. With smartwatches, or other monitoring devices, workers may have concerns about being tracked by their employers, even in the interest of safety.

When delivery trucks had GPS devices installed in their vehicles a decade ago, there was some worker backlash, although that seems to have died down.

In the case of Thiess in Australia and with other company trials, "the primary purpose is not to track workers, but to augment the company's ability to get information quickly," Gownder said. "Companies need to be careful about it, but if their intentions are right, there won't be that much of a worker backlash."

When GPS tracking started in truck fleets, the purpose was to make sure drivers were staying on their routes, which is different from how smartwatch monitoring of workers -- so far -- is being evaluated, he said.

The biggest worry for company managers from the use of smartwatches and other wearables won't be over worker tracking, Llamas said. It will be over the security of the data these workers gather and forward to the cloud or to corporate servers. While pairing a device with a smartphone might seem to offer all the networking security defenses already established through VPNs and other means, there will inevitably be some holes. If devices communicate directly over cellular wireless without the need for a smartphone, there could be more potential vulnerability.

"Hackers would love to get into wearables," Llamas said. "Just think of all the information they could collect about the user and where the user is, or even what the employee sees through a camera on a device. Hack into that kind of data and a hacker could watch a user type in passwords, and then he's about to become a very rich man."

In other words, smartwatches and other wearables are likely to open up many new markets for hardware, software, applications and even security vendors. It's all just starting and CES is about to offer the world a better glimpse.

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